In England, Wales and Northern Ireland a logbook loan is a term for a “bill of sale” which technically makes the lender the owner of your vehicle until such time that you have fully repaid your loan. If you fail to keep up with the repayments on logbook loans the lender may repossess your vehicle without first having to obtain a court order.

In Scotland (where the law is different) a similar arrangement is created by making the loan to you on a “hire purchase” basis. It’s not entirely clear whether this gives Scottish residents greater protection, with Citizens Advice describing the situation on their “Adviceguide” website as being a “complicated area”.

Debt management plan companies like Bright Oak are often contacted by people that have fallen into arrears with their logbook loan repayments. This is perhaps unsurprising given the high interest rates charged by logbook lenders. Obtaining a logbook loan often occurs when someone is already experiencing debt problems and has few other options available to them. Once the cash has been spent the situation often worsens with the extra loan repayment now having to be made on top of other payments.

People that have fallen into arrears on logbook loans often become distressed by the manner in which they’re being treated by the lender. Citizens Advice has recently reported that borrowers are often subject to harsh collection practices, have not had their agreement explained to them properly, were not subject to loan affordability checks and often are subject to excessively high rates of interest. Becoming fearful that their car might imminently be repossessed is often the reason why someone first contacts a debt management firm.

Because the logbook lender has your vehicle as security for your loan a debt management plan is unlikely to offer you direct relief from the risk of your vehicle being repossessed. A DMP involves making negotiated reduced repayments to lenders. Unsecured lenders (like a credit card company for example) typically accept such reduced payment arrangements when a borrower is having repayment difficulty. A provider of logbook loans might well consider it more appropriate to their interests to secure immediate full repayment by taking and selling your vehicle.

If you’re struggling with a number of other debts (as well as a logbook loan) a debt management plan might be more helpful. A DMP prioritises your secured debts (like a mortgage, or a logbook loan) over and above your unsecured debts. This is because essential property (a home or car for example) will be in jeopardy if the full payments aren’t being made.

A budget will be drawn up to ensure that payments to unsecured lenders are reduced sufficiently to enable the continued repayment of a loan secured upon your vehicle. Effectively, money is being “freed-up” wherever possible to help you to afford to keep possession of the vehicle. This can be effective provided that you act soon enough and have sufficient funds at a minimum to cover your household bills, expenses and the logbook loan payment. Other unsecured debts will then be tackled by the DMP or an alternative debt management procedure.